Talbots 4th-quarter forecast disappoints, shares plunge

NEW YORK Tue Dec 7, 2010 1:59pm EST

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NEW YORK (Reuters) - Women's clothing retailer Talbots Inc TLB.N said sales could fall during the crucial holiday season and that it might report a fourth-quarter loss from continuing operations, sending its shares down as much as 23 percent.

To better compete with its rivals' holiday discounts, Talbots said on Tuesday it must offer more promotions, softening a strategy that until now has pushed full-price sales to preserve the prestige of a brand in the middle of an attempted turnaround.

"There is a time for us to use innovative promotions that are more geared to what's happening in the environment and still be brand-appropriate," Chief Executive Officer Trudy Sullivan told analysts on a conference call.

The company's full-price strategy put it at a disadvantage when the weather turned colder in October, because rivals immediately ratcheted up their promotions, said Janney Montgomery Scott analyst Adrienne Tennant.

"They're trying to do one of the most difficult things, which is change their target market, unlike other retailers who are just trying to attract their core market with better promotions," she said.

Today's stock plunge is a buying opportunity, wrote UBS analyst Roxanne Meyer in a research note.

"The company is still in the very early innings of increased marketing, catalog prospecting, store-level product allocation and store renovations," she said.

THE YOUNGER SHOPPER

The recession hurt women's clothing companies like Talbots, which catered to older women who are less susceptible to trends and more likely to spend on their families instead of themselves.

In response, it has tried to attract a new demographic, women who are about 40, while retaining its core customer, Tennant said.

Doing so has made Talbots a rival of AnnTaylor(ANN.N), whose core customer's age reaches to 40.

AnnTaylor reported better-than-expected results in its most recent quarter.

"AnnTaylor planned to go into this holiday season with promotions," Tennant said. "They were fully prepared to do battle.

In part because of a 3.2 percent drop in third-quarter sales, Talbots' inventory rose 11.3 percent from a year earlier.

In September, the company had the opposite problem, running short on smaller sizes and some sweaters.

The company sees its fourth-quarter sales flat-to-down in the low-single-digit percentage range. It forecast a loss of 5 cents a share to a profit of 3 cents per share from continuing operations.

Analysts on average forecast earnings of 14 cents a share, according to Thomson Reuters I/B/E/S.

Talbots' income from continuing operations was $17 million, or 24 cents a share, in the third quarter that ended October 30, compared with income from continuing operations of $15.5 million, or 28 cents a share, a year earlier.

Sales at stores open at least a year, or same-store sales, fell 7.1 percent in the third quarter.

Talbots shares were down $2.35 at $9.04 on Tuesday on the New York Stock exchange.

(Reporting by Helen Chernikoff. Editing by Derek Caney, Dave Zimmerman, Robert MacMillan and Gunna Dickson)

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